QUICK ROUTE TO

ENTREPRENEURSHIP

What is Franchising?
A
management
whereby
the
manufacturer or sole
distributor of trade marked product or
services gives
the exclusive rights of local distribution
to independent
retailers
for
their
payment
and
conformance to
standardized operating procedures.

At least two levels of people are involved in

the
franchise system:
1. The Franchiser, who lends his trademark /
trade name and a business system
2. Franchisee, who pays a royalty and often an
initial fee for the right to do the business
under the franchisers name and system

Franchise Types
Product Franchising
Selling of the finished goods with just mere display of the
goods, which facilitates easy accessibility of the product to
the customer and the actual sales transaction, without any
value addition. E.g retail outlets like Nike, Adidas etc.
Process Franchising
Outlets are granted to use the brand name and process of
the franchiser. The recipe must be the same. The process
and recipe are generally patented by the parent company. (
coke)

Franchise Types Cont'd...

Business Format Franchising
Name, sale and method of doing the
business are transferred with
knowledge of conducting the outlet
with effective follow up mechanism
by the franchiser
Eg, Mc donalds

Areas of Franchising
Apparel and Accessories
Automotive
Beauty & Health
Building Products and services
Business/Personnel Services
Children's Products & Services
Computer related Products and
Services
Decorative Products Services
Education Related Services
Fast Food/Bakery Goods
Frozen Desserts
Hotels & Motels Maintenance Services
Pets Photographic Services
Printing Services
Publishing Services
Real Estate Recreation
Restaurants Retail Business
Security Systems
Services
Travel Related Services and many others..

Advantages to the
Franchisee
Under franchising there are little chances of failure as
compared to risk normally associated with start up
business.
Benefit and use of the business experience of others.
Reduced expenditure on Advertising & promotion at a per
unit level.
Opportunity to start a proven business with limited
capital.
Franchiser available for assistance and guidance
Cost savings when purchasing supplies through the
franchiser
Access to R& D & product development, efforts that the
franchiser had invested in.

Advantages to the
Franchiser

Quick expansion, with less Capital Investment

Less Number of Employees
Fast and well controlled distribution of its products
Product and quality standards as per his specifications
Limited Risk Factor
Risk is spread
Larger Market share in a short time
Lean Organization Structure
Ongoing Revenue from Royalties and Franchise Fee
Integrated Public Image
Growth

Disadvantages
Franchiser
Failure of the franchisee to
operate franchise properly.
High Training efforts
Difficult to maintain Quality
Risk to reputation
Loss of Business secrecy

Franchisee
Revenue outflow
Limited freedom
Operating restrictions
Inability of the
franchiser to provide
promised services
Detailed and open
financial records

How the Franchiser is Paid

Royalty
Lump Sum Payment
Share of Brand Advertising
Higher Price of Key & Secret Materials
Overcharging for Plant & Machinery
Cost of Manual of Procedures
Training Charges
Soft-ware Licences
Visit Fees

Ancillarisation

Ancillary
Oxford Dictionary :
Providing Essential Support

Meaning of an Ancillary
Unit
Industrial undertaking having investment in
fixed assets in plant & machinery not
exceeding Rs. 100 lakhs and engaged in :
Manufacturing of parts, components, sub
assemblies, tooling or intermediates
Rendering services and supplying not
less than 50% of its production to one or
more other industrial undertakings for
production of further articles

Areas of Ancillarization
Industry
Transportation

Ancillaization
Range %
50 to 90

Prime mover and Power base

30 to 50

Industrial machinery and Machine tools

20 to 40

Chemicals and Pharmaceuticals

15 to 30

Consumable durable goods

10 to 30

Metal, mineral and petroleum industry

5 to 10

All other industries (wood, paper, ceramic,

leather, rubber etc.)

2 to 10

Advantages
Minimizes set up cost
Low level of Inventory
Economical Sourcing
Better Quality Standards
Complementary Role
Development of Entrepreneurial Skills

Disadvantages
Dependence on parent company
Obsolescence
Multiplicity of suppliers by parent
company
Securities like earnest money deposit
Delay in receiving payments

Legal Aspects
The Interest on Delayed Payment to
Small Scale & Ancillary Industries
undertaking Act:Enacted in 1993 and
amended
in 1998
Penal
interest
rate upto 150 % of Prime
Lending Rate(PLR)
The agreed date of settlement of dues not to
exceed 120 days
An additional mechanism of arbitration and
conciliation to resolve disputes between
SSI supplier and the large scale buyer
under the Director of Industries
Balance Sheet to disclose the delayed
payments

Government Initiatives to
promote Ancillarization
Sharing successful company
experiences
Training on ISO / QS 9000
Collaboration on Benchmarking
Services
Joint Projects for Productivity
Improvements
Technology Development Projects
Trade Delegations Worldwide
Trade Fairs / Exhibitions
Global Dissemination of Information

Government Initiatives to promote

Ancillarization
Linkages Building
Science & Technology Parks (STP)
Vendor Development Programmes
(SISI)
Sub-contract Exchanges (SISI)
Cluster-development Programme
(SIDBI)
Purchase & Price Preference Scheme
(NSIC)

ACQUISITIONING

MEANING
An acquisition is the purchase of
a business or a part of it so that the
acquired business is completely
absorbed and no longer exists as a
business entity.

Example
emami acquired 57% stakes of zandu

 Vodafones purchase of 52% stake in Hutch Essar for

about$10 billion.Essar groupstill holds 32% in the
Joint venture.
Hindalco of Aditya Birla groups acquisition of Novellis
for$6 billion.
Ranbaxyssale to Japans Daiichi for$4.5
billion.Sing brothers sold the company to Daiichi and
since then there is no real good news coming out of
Ranbaxy.
ONGCacquisitionof Russia basedImperial Energyfor
$2.8 billion. This marked the turn around of Indias hunt
for natural reserves to compete with China.

 NTT DoCoMo-Tata Teleservices deal for$2.7 billion. The

second biggest telecom deal after the Vodafone. Reliance MTN
deal if went through would have been a good addition to the
list.
HDFC Bankacquisition of Centurion Bank of Punjab for$2.4
billion.
Tata Motorsacquisition of luxury car makerJaguar Land
Roverfor$2.3 billion.This could probably the most
ambitious deal after the Ranbaxy one. It certainly landed Tata
Motors into lot of trouble.
Wind Energy premierSuzlon Energysacquistion
ofRePowerfor$1.7 billion.
Reliance Industriestaking over Reliance Petroleum Limited
(RPL) for 8500 crores or$1.6 billion.

ADVANTAGES OF AN ACQUISITION
An existing business will have an operation
in place and thus can avoid some of a new
ventures risks and challenges
An entrepreneur typically starts with some
profits and positive cash flow
Market speculation and uncertainity in sales
projections are reduced because the
business already has a track record.
Condition of the plant and equipment
(assets), if any, is known.

ADVANTAGES..
Bankers and lenders and new outside
investors feel more comfortable while
lending or investing in an established
business.
The
previous
owner
brings
valuable
experience to the enterprise.
Fixed assets can be purchased for less in a
buyout.
Existing business may have a developed
market structure of suppliers, wholesalers,
retailers etc.
Employees of the existing business can be an
important asset.
The entrepreneur can spent more time in
assessing new opportunities to expand or

DISADVANTAGES OF AN
ACQUISTION
The existing business may have marginal
success record or even failure
The business is acquired at an inflated
purchase
price
reflecting
unwarranted
goodwill or a faulty business model
One may end up inheriting some one else
problem.
The existing products are in the decline phase
of the life cycle.
Employees may have difficult time to adjust
with the new management

FOUR STEPS OF
ACQUISITIONING

Planning your approach and targeting

the type of business you wish to
acquire
Finding available business to purchase
Using an appropriate methodology to
evaluate the deal
Negotiating the terms and purchase
price for the business.

IN BUYING A BUSINESS YOU MUST EVALUATE

Management
Reasons for Selling
Customers and Prospects
Markets
Competition
Products or Services Offered
Channels of Distribution, the Sales Force, and
Marketing
Operations, Human Resources and Information
Technology
Profit & Loss Statements, Cash Flows, Balance
Sheets and Forecasts
Critical Risks and Contingencies

VALUATION APPORACH
ASSET VALUATION METHOD

Book Value
Adjusted Book Value
Realization Value
Replacement Value
VALUATION BASED ON CASH FLOW
EARNINGS VALUATION